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* Gulf bourses becoming mainstream markets for foreigners * But poor corporate disclosure often keeps risks high * Secretive company cultures can trump regulations * Some regulators may be reluctant to pursue illicit trading * Exposure to foreign capital may prompt reforms By Nadia Saleem DUBAI, Feb 19 (Reuters) - When Dubai's biggest property developer decided to change its chief executive last year, it did not inform the stock market for weeks. The incident underlined the challenges which investors face as Gulf exchanges boom. Stock markets in the six-nation Gulf Cooperation Council are set to attract billions of dollars of fresh foreign money in coming years as the region develops into a mainstream investment destination. Index compilers MSCI and S&P Dow Jones are upgrading the United Arab Emirates and Qatar to emerging market status. Saudi Arabia is preparing to open its market to direct foreign investment, though it has not fixed a date. Gulf markets have stayed strong during the global turmoil of recent months, as the region's trade and budget surpluses make them safe havens. But in one key way, the Gulf markets lag: the amount of information which listed firms reveal, fund managers say. Secretive company managements, poor disclosure mechanisms and patchy enforcement of disclosure rules mean information is often more scarce than it is in markets elsewhere in the world. That raises the risks for investors and can sometimes even create opportunities for insider trading, in which small groups of well-connected insiders trade on information well before it becomes public knowledge. "Regulations and their implementation in GCC markets, especially those of UAE and Qatar, have improved but they have a long way to go compared to those in the U.S. or London - which reflects how new these markets are," said Slim Feriani, chief investment officer at London-based Advance Emerging Capital. "There will be scandals, because of the nature of the governments and companies, which makes it difficult to have full trust in them." DISCLOSURE All major Middle East exchanges have rules requiring listed companies to disclose important information in a timely way, but the rules are not consistently obeyed. Securities markets in the Gulf are younger than many of their counterparts overseas - Saudi Arabia launched a regulated market in the early 1980s - so an investor-friendly culture has not yet developed. Family-controlled firms traditionally operate secretively; many big firms are controlled by governments which are reluctant to reveal too much information to the public. "It's because of cultural roots - most of the companies in this region are built by trading families who think everything is a trade secret, and they don't like to disclose anything unless they are forced to," said Abdullah Alawi, head of research at Aljazira Capital in Jeddah. Only 6.3 percent of GCC firms covered by the Standard and Poor's credit rating agency have "strong" scores for management and governance, compared to 9.5 percent for the Europe, Middle East and Africa region, and 7.5 percent for the entire world. Tommy Trask, director of corporate ratings at S&P, said the reasons for the low GCC score were board independence and transparency, ownership control and management culture. "Companies we rate in the Gulf region tend to be owned by governments or powerful local families, both of which can be detrimental to corporate governance," Trask said. Boards of directors of infrastructure companies are largely dominated by government officials, making them susceptible to decisions being made in the interest of government policy and not of minority shareholders or creditors, he added. State-linked Emaar Properties, Dubai's largest listed company by market value, quietly replaced its Group Chief Executive Low Ping late last year, appointing Abdulla Lahej as her replacement, industry sources told Reuters. But the company did not announce this to the stock exchange until late January, three days after Reuters reported the news. Emaar did not respond to emails seeking comment on the delay. A lack of forward guidance for analysts during companies' conference calls on their business is another frustration. "As an analyst, you're always worried about not being told the same thing as others," said Sanyalaksna Manibhandu, senior analyst at NBAD Securities in Abu Dhabi. "There is an inconsistency - the regulator encourages transparency but the companies will say we can't give you certain information." A Reuters survey of a dozen international fund managers found Saudi Arabia ranked highest among the five main Middle Eastern exchanges for disclosure of corporate information, with 43 points out of a possible 60. Qatar followed with 41 points and Egypt with 39. Kuwait came bottom with just 18 points. TRADING Erratic corporate disclosure in Gulf markets can lead to big and unexplained share price moves, sometimes extending over several days, that are eventually followed by major corporate announcements. In these cases it is usually not clear that any improper trading has occurred - but the suspicion can be hard to avoid. "Unexplainable market moves destroy investor confidence. You need to see prices react to news - whether positively or negatively - and you need to see it happening legitimately in the market, with a proper flow of information," said Ali Adou, portfolio manager at Abu Dhabi's The National Investor. All of the national regulators have rules against insider trading or other improper market activity. The UAE's Securities and Commodities Authority, for example, says a person who exploits unpublicised information for personal benefit can be liable to imprisonment of up to three years and a fine of as much as 1 million dirhams ($270,000). But around the region, authorities may lack the investigative muscle to go after illicit investors, and there have not been the high-profile legal cases against insider traders seen in other countries such as the United States. "There are classic cases of leaks in information which can't be proved, and we don't have answers," said Alawi. The picture is not entirely grim. Egypt, which has a stock exchange history dating back over a century, has a relatively strong reputation for acting against improper trading. Last month its financial regulator cancelled a day of trades in shares of Cairo-listed investment bank EFG-Hermes, which had soared before the bank announced a 1 billion Egyptian pound ($144 million) share buy-back. Some fund managers believe more exposure to foreign capital, and Gulf countries' desire to diversify their economies beyond oil, will encourage them to tighten standards in coming years. In Saudi Arabia, that already appears to be happening as the Capital Market Authority prepares the stock market for its eventual opening to direct foreign investment. The regulator issued tens of millions of riyals (millions of dollars) in fines to investors in 2013 for breaches of trading regulations, and fined some companies small amounts for poor disclosure. Adou at The National Investor said that while the Gulf's regulatory framework was overall below par compared to developed markets, a lot of effort had gone into improving transparency and corporate governance in recent years. But some analysts think the government's relationship to regulators may need to change for any major improvement. "GCC regulators need to be independent of and have a mandate enabling them to work independently from the government for the level of corporate governance to improve," said Nasser Saidi, founder and president of Nasser Saidi & Associates, an economic consulting company based in Dubai and Beirut. The Reuters survey found Egypt ranked highest among the five main Middle East markets for enforcement of rules against illicit trade, with 43 points. Saudi Arabia, at 35 points, came second; Kuwait was again at the bottom with only 14 points. SURVEY RESULTS (12 fund managers, maximum 60 points) Question 1: Rate company disclosures for timely and transparent announcements. Question 2: Rate effective implementation of regulations against improper or illicit trade. TOTAL TOTAL Q1 Q2 Saudi 43 Egypt 43 Arabia Qatar 41 Saudi 35 Arabia Egypt 39 Qatar 30 UAE 37 UAE 30 Kuwait 18 Kuwait 14 (Additional reporting by Raya Atallah; Editing by Andrew Torchia)